Cable 2002: Waiting for the Killer App

Pick your fight: Program networks versus cable operators in the latest feud about the prices paid for content carriage.

Video-on-demand versus networked Personal Video Recorders (nPVRs).

Cable TV versus DBS. Cable modems versus telco's DSL services.

Interactive Program Guides. Home Networks. Streaming video.

Everywhere you looked at the annual National Cable and Telecommunications Association convention, a battle was brewing. Ironically, the once-contentious topic of high-definition TV was one of the few sanguine issues in the wake of an industry-wide embrace of HDTV - at least for certain programs.

As the cable convention began, the 10 largest Multiple System Operators (MSOs) said they would start carrying in January at least five HDTV channels on their major systems that have been upgraded to digital. AT&T Broadband said it will transmit HDTV on its Chicago-area systems, joining Comcast, Charter and Time Warner, which have all promised HDTV carriage. A growing number of cable networks - starting with HBO, Showtime and now Discovery - have vowed to run HDTV shows.

On the hardware side, Scientific-Atlanta said it has shipped more than 38,000 of its Model 3100HD set-top box for HDTV reception to a half-dozen North American cable operators. S-A's competitors also report significant early shipments.

But the NCTA convention was not about HDTV. There were other battles to fight.

Despite the pugilistic potential, however, speakers at NCTA in early May rarely came out swinging except to pat themselves on the back for their successes in a chaotic environment. In part, the low turnout (the show had about half the number of attendees and exhibit space as the 2000 event in the same New Orleans venue and was down 30 percent from last year in Chicago) put an unfamiliar restrictor on the buzz and the verve at the show. It also reflected Wall Street's current dismay with the cable industry.

Even the pricing clash between networks and MSOs - widely touted as the main event heading into the convention - was muted. Cable operators are clearly distressed at the higher programming fees (such as ESPN's latest 20 percent boost), which they must pass on to disgruntled customers. Cablevision's decision not to carry Yankees baseball games under a proposed $2 per home contract epitomizes this feud. Cable operators - especially small system owners - particularly bristle at the networks' pricing, but all parties tried to keep their fee negotiations behind closed doors during the convention.

MANY FLAVORS OF VOD

More visibly, cable's confusion about how to exploit VOD - the predominant theme of the convention - added to the malaise. Subscription VOD and Free VOD are among the options being explored, although few definitive commitments were made at the convention.

"It's easy to sell VOD," said Michael Willner, president of Insight Communications, who was re-elected NCTA chairman at the convention. He acknowledged that the initial implementation of VOD is a movies-on-demand service, competing with video rental stores. (Although Willner did not mention it, others pointed out that the fast-growing popularity of DVDs is already affecting consumer appetite for VOD.)

"What's more difficult," Willner continued, "is selling other types of services that people are not used to using on TV and making them TV-centric." Willner predicted that more of these new services will roll out in the next year.

Willner's company has just signed up to carry MagRack (as in "magazine rack"), an innovative VOD programming source. MagRack is currently a collection of nearly three dozen specialty video segments (from birdwatching to fashion to outdoor sports), all available through a subscription VOD package from Rainbow Media Holdings.

Another more typical approach to VOD involves repurposing of linear content on a pay-per-view VOD format. BBC America, in collaboration with Digital Video Arts, a SeaChange International subsidiary, demonstrated a VOD concept that incorporates cable's favorite restrictive format: the "walled garden." A subscriber starts to watch a conventional BBC show and is advised that a full-length version of the program is available for a small pay-per-view fee.

Since many BBC shows are of irregular length (40 minutes or 75 minutes, for example), they don't fit into conventional U.S. scheduling formats. The VOD offer would switch viewers to the unedited version, using "Channel Link," Digital Video Arts' seamless software. Channel Link includes a "hot-tune" feature that moves viewers over to a VOD feed of the show, but keeps them in the BBC America fold.

Elsewhere at the show, "Free VOD" proposals - including advertising-supported and ad-based formats - were on display. Although the demo-ware was often impressive, few details were available on actual implementations or business models.

ITV ON HOLD

Interactive television - the hottest topic a year ago - was shoved to the backburner at Cable 2002, including the spat between purported iTV "leaders" Microsoft and Liberate. Microsoft turned its attention downward - to a low-end Interactive Program Guide (IPG) that works on the simplest digital set-top box, such as Motorola's DCT 1000-series devices. Microsoft's thin-client IPG circumvents the litigious fury of Gemstar-TV Guide, the category's dominant supplier. Gemstar-TV Guide announced the "impending availability" of a Java-based version of its TV Guide Interactive IPG that will run on Liberate's middleware platform.

Convention buzz about consolidation in the iTV category crescendoed just as the show wrapped up. John Malone (longtime president of Tele-Communications Inc., now of Liberty Media Corp.) bought his way into the ITV business by snapping up controlling interest in OpenTV Corp. Liberty also took over the pioneering but beleaguered ACTV Corp. The back-to-back deals sent cable conventioneers home wondering about what happens next in the ITV category, which has been slow to generate traffic.

Indeed, one of the busiest aspects of the iTV sector was in the interactive games category. Static 2358, which offers interactive games through OpenTV (its parent company), unveiled more games and a deal with Cablevision Systems. Its primary rival, Buzztime, a subsidiary of sports-bar games purveyor NTN Corp., demonstrated its latest lineup of trivia and quiz games, now available through Liberate and on the Scientific-Atlanta STBs.

RIGHT AT HOME

The profusion of home network vehicles - sometimes dubbed "digital media centers" or a similar sobriquet - further contributed to the convention's quandaries. Motorola touted its hastily conceived "Broadband Media Center" DCT8000, a set-top box that can be used with the new Digeo home media center service, being tested on Charter Cable. And of course, Digeo now includes the Moxi Digital home networking capability, recently acquired after the Moxi implosion earlier this year.

Scientific-Atlanta's comparable Explorer 8000 digital STB includes a PVR, and S-A was eager to tout that Time Warner Cable is in the early stages of deploying the device in selected systems.

Pioneer, S-A, Pace and other STB makers showcased their home networking solutions, which cable operators are evaluating as an alternative revenue stream. Third-party alliances with software integrators such as uCentric are critical to these deals, and it was clear that cable operators are in the earliest stages of evaluating proposals - and how much is in it for them.

As for the other battlegrounds, the cable convention served as the annual pep rally for the continuing dominance of cable modems over DSL, even though growth in both high-speed access realms is flattening.

Adoption rates for cable modem services have "exceeded expectations," said Comcast Communications Corp. President Brian Roberts, noting that penetration is at about 18 percent of homes industry-wide. But he acknowledged that broadband still lacks "a killer application" that will drive it into more homes. He said the only way to increase the usage rate is by developing new broadband-specific applications that offer customers a reason to purchase the service.

PROGRAMMERS IN 'SHANTYTOWN'

Among the factors contributing to a discombobulated cable convention was the role of cable program networks - the snazzy sector that once upon a time added dazzle to the annual cable industry extravaganza. But instead of the spectacular and celebrity-studded (and expensive) booths of the past, many programmers opted for prefab "executive suites" - i.e., glassed-in meeting rooms clustered together at one end of the New Orleans convention center. Many networks had balked at the million-dollar expense of a full-fledged booth when they only wanted to show their material to the surviving handful of Multiple System Operators who attend the convention.

To reel in the networks' participation, NCTA offered programmers these pre-fab huts for $50,000 apiece. The secluded area - quickly nicknamed "Shantytown" and sparsely populated - was emblematic of the new reality of cable. Only a handful of networks - such as Discovery, Fox, Disney and NBC and Rainbow Media - actually built conventional booths to show off their program services. And often those booths were nearly empty.

Even if they hadn't been lost in the technology shuffle, the programmers seemed to be an afterthought for many of the attendees at the tech-centric Cable 2002 gathering. Yet the programmers - like the MSOs - share the concerns of the entire industry about how to make these massive technology investments pay off - if for no other reason than to appease Wall Street.

Technology solutions - such as nPVRs, a concept that vendors such as nCube and SeaChange touted, but few operators know how to apply - are reminders of the battles ahead for the cable industry.